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4A Wichita Falls Economic Development Minutes - 02/08/2006y MINUTES OF THE WICHITA FALLS ECONOMIC DEVELOPMENT CORPORATION FEBRUARY 8, 2006 Present: Members: Gary Shores, President Bill Altman Dave Lilley Lou Rodriguez City Council: Lanham Lyne, Mayor City Staff: Darron Leiker, City Manager Matt Benoit, Assistant City Manager Linda Merrill, Recording Secretary BCI: Tim Chase, President Kevin Pearson, VP of Economic Development Wichita Clutch: Mark Stuebe, General Manager Kip Cummings, Division Controller Absent., Members: Bo Stahler, Vice President I. CALL TO ORDER. President Gary Shores called the meeting to order at 4:03 p.m. II. APPROVAL OF MINUTES - DECEMBER 19, 2005. Bill Altman moved, seconded by Dave Lilley, that the December 19, 2005 minutes be approved. The motion carried. III. DISCUSSION AND POSSIBLE ACTION ON AN ECONOMIC DEVELOPMENT INCENTIVE AGREEMENT WITH WICHITA CLUTCH. Mr. Stuebe thanked the Board for entertaining his company's request. He recalled that in 2002, the industrial clutch operation moved from Waukesha, Wisconsin to Wichita Falls, and the 4A Board provided funds for that move. That consolidation went as planned, and the company met or exceeded all its targets. Wichita Clutch is now on a tremendous growth spurt, due to the booming oil and gas business. The company's bookings are up 70 %; its backlog is seven times higher than it was one year ago. Wichita Falls Economic Development Corporation February 8, 2006 Meeting Minutes Page 2 The company needs workers and equipment. The owners of Wichita Clutch have ordered over $2.5 million worth of new equipment. There is a need for between 10 -25 more workers, depending upon the economy. The company is having a difficult time finding qualified machinists. They have advertised in the Dallas /Ft. Worth and Abilene areas, with not much luck. The salary is competitive, with a starting salary of $12.60, and $20.20 paid to top machinists. The company's manufacturing manager has developed a training program with Vernon College to teach skills to new machinists. This instruction will also include on- the -job training, but all of this will take time. Wichita Clutch is requesting funding assistance for that training. That is an immediate need. Altra now owns Wichita Clutch, having acquired it from Colfax in 2004. On February 10, the company will acquire the Hay Hall Group, a United Kingdom company. One of its businesses, Twiflex, will fall under the responsibility of Wichita Clutch. This will also cause Wichita Clutch to grow, contingent upon the availability of quality workers. Sufficient space is available at the site, but they have struggled since 2005 to find manufacturing and engineering employees. They have been working with MSU and Vernon College to build a base of employees. Mr. Shores asked what effect the acquisition will have on Wichita Clutch. Mr. Stuebe replied the company would gain 20 employees, and another $8 million in sales. Mr. Pearson noted that due to the difficulty in finding qualified workers, Wichita Clutch proposes putting people through 220 hours of training at Vernon College to become machinists. It is the company's desire to get the program underway immediately. Mr. Stuebe remarked that three years ago, there was a concern whether Wichita Clutch would remain in business; now they are operating at a pace that surpasses their dreams. They have increased new product development; in fact, 20% of their sales are based on products developed in the past year. They have $10 million worth of new products ready to launch in the next 18 months. Wichita Clutch still manufactures in America, and therefore can control capacity. Being quick on the design side also accounts for the company's rapid growth. Mr. Altman remarked that at first blush, the Memorandum of Understanding (MOU) caused some hesitation, because it contains a higher than normal payment per job. However, any community trying to encourage economic development has to be able to assure any company that there are sufficient workers available. As Wichita Falls has a lack of qualified, trained potential employees, he is willing to go the extra mile correct that deficit. Mr. Stuebe remarked that the company is subcontracting with the local machine shops to keep up with demand. It is essential to develop machining skills in potential workers. The welding classes at Vernon College are overflowing, but the machining classes are idle and need to be resurrected. Wichita Falls Economic Development Corporation February 8, 2006 Meeting Minutes Page 3 Mr. Chase stated that the 4A Board, in conjunction with Stanley Tools, Wichita Clutch and other companies, built the machining lab at Vernon College. It is disappointing to discover no students are enrolled. There is a systemic problem with the workforce, and people need to be made aware of the availability of $40,000 jobs with benefits. Mr. Shores noted that any company would have a more vested interest in an employee versus an intern. He assumes this request to offset the salary expense of these students while in training is a total offset. In effect, he continued, Wichita Clutch would have no financial obligation to the students unless they were later hired. Mr. Stuebe stated that the company's goal is to attract good, qualified workers. Rather than create a program and have an open enrollment, they will screen the people and choose whom they wish to put through the program. As they are trained, they will be employees of Wichita Clutch. Kip Cummings added that they would receive on- the -job training as well as classroom hours. Mr. Pearson asked for clarification that the employees would receive benefits. Mr. Stuebe replied affirmatively, after a 30 -day period. The students will be Clutch employees. The company will not be getting production from them while they are in training. That is the cost they are hoping to offset with this request. Mr. Pearson noted to the Board that Mr. Chase and Mr. Stuebe had discussed relocation costs if workers are hired from outside this area. Mr. Chase stated that would depend upon how critical the search became, as that would be a significant additional cost. Mr. Stuebe stated that while he is encouraged by the initial screen performed over the past two months, that is for the short term. If the supply of workers here runs out, it would be a tough sell to move people here from Detroit. He did not think they would need to look that far for workers, however. Mr. Chase remarked that Oklahoma City will have a lot of unemployed folks in a very short time. Mr. Altman asked if the amount to approve is $63,000. Mr. Chase stated he did not come up with a formula and number; there are a couple of different ways to go. He wonders if the Board will require the company to have some "skin in the game" with regard to a portion of the expenses, versus the 4A Board covering all of the expenses. Mr. Stuebe replied that the company's skin in the game is the $2.5 million worth of new equipment from its Board of Directors. That is a substantial investment. He added that the Board of Directors will be in Wichita Falls in December 2006 for a meeting at the plant. Mr. Altman asked Mr. Chase if he had a recommendation for the Board. He replied that he could make recommendations, or the Board can do that itself. He did note that payments to the company would be made after the workers have been on the payroll for six months, as is the normal format. Mr. Altman moved for the expenditure of $63,042, seconded by Mr. Lilley. Mr. Shores asked if the motion is meant to authorize the outline as stated, or just the Wichita Falls Economic Development Corporation February 8, 2006 Meeting Minutes Page 4 expenditure of the funds. He expressed concern over the claw back provision in the MOU. It is different from agreements approved in the past. In effect, this provision requires Wichita Clutch to reimburse the 4A Board for the $63,000 if it ceases operation prior to the expiration of 12 months. Mr. Stuebe remarked that he had no problem with that provision. Mr. Shores replied that MOU agreements were typically based on employment. While he does not anticipate Wichita Clutch will shut down, he feels the Board should continue with the traditional MOU format, whereby Wichita Clutch would make payments based upon the number of new employees hired. If Wichita Clutch has only three out of ten employees hired after 12 months, the 4A Board would be reimbursed for those seven employees. Mr. Stuebe expressed concern that he cannot control market conditions, but assuming market conditions, he will live up to that agreement. He believes something similar was done in the first MOU, and agrees it was based on employment. If market conditions change, he will need to maintain the company's profitability. Mr. Chase noted that a time limit has always been set. It is realistic to expect the market to change at some time in the future. The jobs created are expected to be in place for a period of time, usually a couple of years. At the end of that time, there is no further obligation for claw backs. In this case, if 15 -25 machinists are trained, the demand will continue in the future as the aging workforce exits. The community will be the net gainer of smarter, more employable people. Mr. Pearson noted the MOU would be based upon dollars per job. In this case, the $4,500 per job would not be paid until those positions were in place for six months. If the Board disbursed money after that six -month period and Wichita Clutch closed its doors within that 12 -month window, they would be required to reimburse the funds. Mr. Chase stated the date of the MOU is the "line in the sand." Wichita Clutch would have to show their payroll records. Once it is time to collect, they would furnish similar payroll records, and the 4A Board would pay the difference. Mayor Lyne asked if it were possible to put in 15, then "up to" 25 employees. Mr. Altman amended his motion to authorize funding as outlined in the economic development project summary, adjusted up to 25 employees; further, to authorize Gary Shores to sign the MOU, after working out the details. Mr. Lilley asked for clarification that the amendment is only regarding the number of potential jobs up to 25, and has nothing to do with being tied to employment (as far as payback is concerned). Mayor Lyne stated that it would still be tied to employment. Mr. Lilley continued, stating that Wichita Clutch would be responsible for payment in the event the employment numbers did not increase. Mr. Chase stated the MOU Terms are always based on performance. A company must do "x" before the Board will do "y." In order to prove "x," a six -month time period is established. • Wichita Falls Economic Development Corporation February 8, 2006 Meeting Minutes Page 5 Mr. Lilley countered that, regardless of whether they're still employed at Wichita Clutch, the 4A Board paid for the education of machinists who will likely stay in Wichita Falls. In the event that Wichita Clutch is unable to keep them employed, they are penalized monetarily in the form of a repayment to the Board for ultimately educating a machinist for the good of Wichita Falls. Mr. Altman replied that it is not a repaying of the 4A Board, because the Board is not funding it until they reach that point. They are not getting something that they have to repay. Mr. Chase stated the MOU would require that the 4A Board write a check to Vernon College for the training, and pay the wages for those employees during that time. But six months later, they get paid back. Mayor Line believes that Mr. Lilley was alluding to the scenario that if something caused a downturn in the company's business in the subsequent six months, the Board would in effect be penalizing Wichita Clutch for training workers for our community. Mr. Altman suggested the Board stick with the standard MOU. If there is a disastrous turn of economic conditions, Wichita Clutch can come back before the Board and request an adjustment in the terms. Mr. Chase added that the Texas Legislature, two sessions ago, requires some type of claw back provision. The terms for such a provision, however, are up to the Board. Mr. Lilley stated it would be his suggestion to make the claw back provision as friendly to Wichita Clutch as possible. Most agreements the Board enters into are cash incentives to enhance payment of a potential employee, not to train an unskilled person. Whether Wichita Clutch stays or goes, the chances are Wichita Falls will have an educated, marketable person left in the community by virtue of what Wichita Clutch is offering to do. Mr. Altman explained that his amended motion allows for the details of the MOU to be worked out between Mr. Shores and Wichita Clutch. An agreement acceptable to both sides will be reached. The motion carried unanimously. IV. EXECUTIVE SESSION, As AUTHORIZED BY SECTION 551.072 OF THE TEXAS LOCAL GOVERNMENT CODE, TO DISCUSS ACQUIRING RAIL ACCESS TO THE WICHITA FALLS BUSINESS PARK. The Board adjourned into executive session from 4:31 p.m. to 4:48 p.m., as authorized by Section 551.087. . Wichita Falls Economic Development Corporation February 8, 2006 Meeting Minutes Page 6 V. EXECUTIVE SESSION, AS AUTHORIZED BY SECTION 551.087 OF THE TEXAS LOCAL GOVERNMENT CODE, TO DISCUSS A POSSIBLE ECONOMIC DEVELOPMENT INCENTIVE PACKAGE FOR MACHINING SOLUTIONS. The Board adjourned into executive session at 4:48 p.m., and reconvened the meeting at 5:03 p.m. VI. DISCUSSION AND POSSIBLE ACTION ON A BUSINESS PARK CONSULTANT. Mr. Chase observed that Isaac Manning has been a consultant for the Business Park since the project began. His contract officially expired in October 2005. However, he is committed to getting Wichita Falls through the final stages of production and construction. He is no longer billing the City, and will finish his obligations at no additional cost. There has been some delay in the ordering of materials for the monument, wall, landscaping, and flags. The road, sewer and water are all in place, albeit moving rather slowly. There is no need to discuss renewal of Mr. Manning's contract. VII. OTHER BUSINESS. Mr. Pearson provided an update on Atco.' They are making the building ready for production. They hope to be in production after April 1, if not sooner. They hired a new general manager. Management and supervisory personnel are on board, and they are beginning to hire 50 production workers. He noted that Councilor Jim Ginnings suggested City trees be used to landscape the property. Parks Director Jack Murphy and City Manager Darron Leiker have been involved in this process. There will be six trees planted in the right -of -way. There is existing irrigation, so things are moving forward. VIII. ADJOURN. The meeting adjourned at 5:08 p.m. �* .� ary ores, President At its December 19, 2005 meeting, the 4A Board approved a Memorandum of Understanding with Atco Structures, whereby $500,000 would be paid to ATCO over a three -year period, providing ATCO: (1) creates a minimum of 100 new jobs; (2) invests a minimum of $800,000 in Wichita Falls; and (3) invests $1 million in raw material and work -in- progress inventory.